The taxpayer worked at the same law practice with her spouse. When they separated, they agreed that she would continue to work at the practice as an employee or, if her employment were terminated, that the monthly support payments from her spouse would increase from $2000 to $3000 per month. Her employment was terminated, but she continued to receive $2000 per month. Following litigation, they settled on the basis that the taxpayer's spouse pay her a sum of $36,000, representing three years' worth of what the settlement agreement called "retroactive additional periodic child support." (This represented a compromise from the taxpayer's original position, as the disputed period was 43 months.)
Sharlow JA accepted the taxpayer's argument that the $36,000 payment was not taxable in the taxpayer's hands because it did not represent payments on a periodic basis. Had the amount been a payment for an arrears of child support, then it would have represented a periodic payment. However, there was little in the agreement to support such a finding. Sharlow JA stated (at para. 46):
The litigation would have involved numerous issues, some involving issues with potential long term effects that would have been more significant than arrears of child support. They might have settled the unpaid child support issues in a way that would formally recognize the arrears, and provide for their payment or partial payment. Or, they might have put aside the issue of arrears of child support and created an entirely new obligation. It is impossible to determine from the record that either one of those solutions would have been more reasonable than the other.
The $36,000 was thus a settlement amount rather than child support.